A put option that expires in six months with an exercise price of $40 sells for

Question

A put option that expires in six months with an exercise price of $40 sells for $4.75. The stock is currently priced at $36, and the risk-free rate is 4.5 percent per year, compounded continuously.

What is the price of a call option with the same exercise price? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)

A put option that expires in six months with an exercise price of $40 sells for $4.75. The stock is currently priced at $36, and the risk-free rate is 4.5 percent per year, compounded continuously.

Explanation / Answer

We know,

C = E * e-rt + Put Option -Stock Price

= 40 * e(-0.045) * (6/12) + 4.75 -36   

= 40*0.97775 -31.25

= 39.11-31.25 = $ 7.86

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.